How is the NYSE Different from NASDAQ?

Investors watch the numbers daily, but are unaware that the operation behind market trading is the main difference between nyse and nasdaq. A major portion of equity trading occurring in worldwide takes place on two of the largest exchanges, the New York Stock Exchange (NYSE) and National Association of Security Dealers Automated Quotations.

Man vs. Machine

The New York Stock Exchange (NYSE), referred to as "the big board," is where the majority of trading activity takes place and has for years. The NYSE is a physical location housing a large floor where traders representing equities make deals regarding purchases and sales; it is much like an auction house. From the morning bell rung at 9:30 AM, EST, traders yell out prices they are willing to sell, the asking price, or prices one is willing to pay for a stock, the highest bid.

The NASDAQ market is not a physical place. This second largest market in the United States, NASDAQ trading is done using completely automated systems of complex telecommunications designed to match investors with buyers and sellers. Unlike the NYSE auction concept, the NASDAQ is called a dealers market. Transactions are not person to person, but use automation designed to connect companies with dealers who list specific inventory for sale or purchase. NASDAQ being the first, dealers now trade online as well.

Traffic Control

The NYSE is hyper-active with humans running around making calls (shouting prices), constant phone and computer use, and trash from notes or orders covering the floor like confetti. Therefore, traffic control is necessary. At the NYSE, that control is facilitated by a specialist, a person who matches buyers with sellers to ensure smooth and orderly client transactions.

The NASDAQ traffic controller is called a market-maker. Market-makers takes a more active role in creating the products it is offering to the buyers and sellers, whereas the NYSE limits specialists to basic matchmaking. Market-makers usually handle more volume than specialists since computer transactions can take place in seconds, unlike the NYSE specialist's human match-ups.

Product and Perception

The NYSE is perceived as more stable, with the companies it lists seen as well-established, blue-chip, stocks having been around for decades. Its listing fee comes with a blue-chip price of almost five times the entry fee for a listing on the NASDAQ.

The NASDAQ, younger having been initiated in 1971, has the reputation for technology and information systems stocks which lead to its label as being more volatile. Perhaps, the fact that the exchange has always been a computer based, automated system gives the impression that its stocks are centered in technology and subject to instability and bubbles. This is probably the main difference between nyse and nasdaq operations.